‘The Anarchy of Success’

In response to:

William Easterly misrepresents Bad Samaritans [“The Anarchy of Success,” NYR, October 8] as advocating 1960s-style state planning, when I argue for a judicious mix of market and government.

Mr. Easterly attacks me for relying on a few East Asian countries to make my case. However, one of the central points of my book is that most of today’s rich countries, and not just those in Asia, have succeeded through infant industry protection. Mr. Easterly tries to dismiss the importance of these historical cases by arguing that those countries have more often protected agriculture than industry. This is not true. A recent study by Lehmann and O’Rourke for the National Bureau of Economic Research shows that most of them protected industry far more than agriculture.

Mr. Easterly argues that looking at 1983–2008, instead of 1980–2000 (as I do), shows that growth in developing countries under neoliberalism was as vigorous as in the interventionist period. We can debate the exact numbers, but he fails to consider that the growth rate for his neoliberal period is improved both by excluding the recession in 1980–1982 (caused by neoliberal monetary policy in the US) and by the ascent of China and India (which have never embraced neoliberalism), which compensates for the abject failures in Latin America and sub-Saharan Africa, which implemented neoliberal policies most faithfully. He tries to refute my argument that the growth rate of Mexican per capita income of 1.8 percent from 1994–2002 is evidence that free trade isn’t working there, asserting that “it takes a while to decide what policies are having a positive effect on growth.” Unfortunately for him, Mexico’s growth rate during 2002–2009 is negative.

Mr. Easterly says representative democracy was a key to the economic development of Western countries. He should brush up his history. No Western country adopted universal suffrage before 1907 (New Zealand) and it was only after World War II that a majority of them gave the vote to all. Perhaps it’s just trivia for him that Switzerland refused to give women the vote until 1971, but what does Mr. Easterly think the civil rights movement was all about?

Mr. Easterly says that economic growth does not come from “experts” like me but entrepreneurs, like Ju-Yung Chung, the legendary founder of Hyundai. He conveniently omits the details that prove my point: before it succeeded in the world market, Chung’s auto venture was supported by decades of import bans, export subsidies, and tariff protection.

Ha-Joon Chang
University of Cambridge
Cambridge, England

To the Editors:

If the “Gang of Four” of East Asia—Hong Kong, Singapore, Taiwan, and South Korea —and now China are current successes, as William Easterly writes in his review of The Drunkard’s Walk by Leonard Mlodinow and Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism, it is not only the policy of free trade that made them so, or other policies discussed in the review. It is also the centuries-old institution of “overseas Chinese” and the ethnic Tongs, who made it happen like the Protestants in Easterly’s review.

The Overseas Chinese Association (OCA) was and still is a significant, enormous organization in China and within the rest of the “Gang of Four” countries (except of course South Korea) and reflects their mission: to create a borderless federation for promotion of businesses of overseas Chinese merchants linking banks, manufacturers, merchants, technical specialists like construction and mining engineers, and government.

The OCA worked directly with existing governments, socialist, Communist, and capitalist, well before the current East Asian miracle bloomed. By 1980, the Overseas Chinese Association had a chain of hotels, meeting rooms, communication networks, business facilities like telex, overseas telephone exchanges, printing equipment, restaurant entertainment rooms, and private banquet facilities in all but the smallest cities in China and in the rest of the “Gang of Four” countries. This made for smooth, integrated business growth for Chinese businessmen, which, in Singapore, Malaysia, and Taiwan, meant most new development. Even without the OCA, Chinese in Malaysia and Singapore and Hong Kong had the hidden support of the southern Chinese family Tongs, which gave and still give incredible advantages, functioning as tough “old boy” networks.

I was a guest of a Haaka Tong member who was also a member of the Overseas Chinese Association in the early 1980s and I observed how a transaction that might take a businessman from the US, Australia, India, or the UK months took only a few days.

William Easterly replies:

I agree with Mr. Rossant on the role of the overseas Chinese—they would be part of what I called the “randomness” of “who will be in the right place at the right time to sell the right thing to the right people.”

Concerning Professor Chang’s letter, it puzzles me that he did not respond to my main criticism of his book: that he finds spurious patterns in partially random economic outcomes in ways identified by Leonard Mlodinow’s book. In particular, I criticized him for selective use of evidence (confirmation bias) and excessive reliance on too little data. His letter claims to rebut my criticisms—by engaging in more selective use of evidence (confirmation bias) and more excessive reliance on too little data.

So, for example, Chang rebuts my claim that “rich countries have often protected agriculture rather than industry,” citing a study that he says shows “most of them protected industry far more than agriculture.” I am not sure what he means by “most,” as the study covered only ten now-rich countries from 1875 to 1913, of which only one (Australia) fits Chang’s “far more” statement. The others broke down like this: two protected agriculture somewhat more, three protected manufacturing somewhat more, and the other four were tied or mixed. In this case, Chang does seem to find what he already expected to find even in the studies he has already selected to bolster his argument (Mlodinow’s “confirmation bias.”)

Chang similarly is selective in his attempt to rescue his vulnerable claim that growth is slower under a system of neoliberalism (to use his term), in which states do not intervene much in relatively free markets and free trade. His letter admits my point that growth performance under neoliberalism is as good as before neoliberalism, but now he attributes this to allegedly non-neoliberal China and India. Yet his letter omits the inconvenient fact that China and India are much more neoliberal than they were in the good old days of the interventionist period.

Chang misses the point on how the evidence for any one good thing—like representative democracy—is only reliable in the very long run (lots of data) and cannot be confirmed or rejected with only a few examples (too little data). So he refutes my case for democracy with lots of data—by reliance on too little data (whether women in one country—Switzerland—could vote after 1971? Of course this is not trivial from a moral standpoint, but its weight as evidence is minuscule). The now-rich countries have been more democratic than the rest of the world on average in the long run and have been steadily increasing in democracy.

Mlodinow’s book warned that our brains are so hard-wired to misunderstand randomness that we make the same mistakes even after somebody points out the mistakes. I have been guilty of this myself in my own career, and unfortunately Chang now does the same with this letter.